Chapter 13 bankruptcy requires filers to repay a portion of the debt they owe. There are a few reasons why someone would file Chapter 13 instead of Chapter 7. The first is that their income is too high to file Chapter 7. In order to file Chapter 7, your income must be below the median income for your household size. The United States Census Bureau issues median income figures twice a year.

Someone might also file Chapter 13 if they have assets that are not protected by the bankruptcy code’s exemption rules, or they have assets that are significantly more valuable than the exempt amount. Lately, we have been filing Chapter 13 bankruptcies for homeowners whose home value greatly exceeds what they owe on the home. Finally, someone might file Chapter 13 if they have gone through a divorce and were ordered to repay a portion of their ex-spouse’s debts.

Before we calculate what someone’s monthly Chapter 13 plan payment will be, we have to determine how long their plan will be. A Chapter 13 plan will last between three and five years. If a filer’s income is below the median income for their household size, their plan can be for three years (36 months). If a filer’s income is above the median income, their plan must be for five years (60 months). A plan can last no longer than five years.

How much a filer’s monthly payment will be depends on three things: their disposable income; their non-exempt assets; and whether any of their debts are considered “priority” or must be paid off during the course of their plan.

Disposable income is calculated based on a formula set forth in the bankruptcy code. It’s fairly straight forward, though. Disposable income equals gross household income minus reasonable and necessary expenses. So, if your gross household income is $1,000 and your reasonable and necessary expenses total $900, your disposable income is $100. You will have to pay $100 a month to your unsecured creditors over the course of your Chapter 13 bankruptcy.

The second factor we have to look at to determine someone’s Chapter 13 plan payment is whether or not they have any non-exempt assets or assets that are greater in value than what is protected under the bankruptcy code’s exemption rules. Let’s say someone has $100,000 in equity in their primary residence. The homestead exemption in Colorado currently only protects $75,000 in equity. That means that the filer’s unsecured creditors will have to get at least $25,000 over the course of their Chapter 13 bankruptcy. That $25,000 will be divided up into equal monthly payments. The filer will also have to pay attorney fees on top of that $25,000.

Certain debts, known as priority debts, must be paid off during the course of the Chapter 13 plan. Back taxes and child support arrears are considered priority debts. If someone has $10,000 in back taxes, that is the minimum amount that will have to be paid in a Chapter 13 plan. If someone is behind on their mortgage, the arrears amount will also have to be paid during the course of the plan, on top of their regular mortgage payment.

A filer will have to pay the greater of either their disposable income, value of their non-exempt assets, or the amount of their priority debts.

Imagine if someone’s disposable income was $100 and they are in a three year plan, but they also have $18,000 in non-exempt equity in their home. Their monthly Chapter 13 payment would have to be $500. If their disposable income isn’t sufficient to make that monthly payment, then Chapter 13 isn’t feasible. That person might consider selling their home and using a portion of the proceeds to pay off their debts or live off their proceeds and then file Chapter 7.

Chapter 13 bankruptcy is a complex process. My consultations with people who need to file Chapter 13 usually take between an hour and 90 minutes to go over the details and provide all the scenarios they’ll want to think about. If you have questions, please call us at 303.331.3403.

In broad terms, there are two types of Chapter 7 bankruptcy case: “asset” and “no asset”.

Most Chapter 7 filers have no asset cases. What that means is their assets, i.e. personal belongings and real estate, are exempt (protected) under the bankruptcy rules. Practically speaking, in a no asset case there isn’t anything for the bankruptcy trustee to liquidate.

The bankruptcy court will close a no asset case about four weeks after a discharge enters.

In an asset case, there are non-exempt (unprotected) assets that the trustee can liquidate to pay the creditors’ claims. In Colorado, the most common non-exempt asset is tax refunds. Toward the end of the year and the beginning of the year, the trustees will be on the look out for cases where the filer is expecting to get a tax refund. Another common non-exempt asset in Colorado is firearms.

If a trustee wants to liquidate any non-exempt assets, he or she will also want the filer to turn over 25% of the net amount of any wages the filer was due on the date his bankruptcy was filed, as well as 25% of any funds (cash or bank deposits) from wages the filer has on the date his bankruptcy was filed. Both of these items are also non-exempt. In most cases, the trustee will only be interested in wages if the filer has other non-exempt assets that he or she can liquidate.

An asset case will stay open until the trustee liquidates any non-exempt assets and distributes those funds to creditors. There isn’t any time constraint on liquidating assets, and the trustee can keep a case open for many months.

Filers in asset cases and a no asset cases will get their discharge at the same time, approximately 60 days after their meeting with the trustee (also known as the creditors meeting or 341 hearing).

It’s important to determine before you even file whether or not you have an asset or a no asset case. You should rely on an experienced bankruptcy lawyer to tell you whether you have any non-exempt assets. If you do, you and your lawyer can create a strategy for dealing with them. We would love to help guide you through the bankruptcy process. Call us at 303.331.3403.

I often get calls from people who want to know if I can help them file bankruptcy for their business. After trying their best, for one reason or another their business plan just didn’t work out. Maybe they didn’t have enough capital. Maybe their household couldn’t survive on one income while the business got up and running. Whatever the reason, they want to know if the can declare bankruptcy to get out from under the debt for the business.

As a general rule, it’s fairly unusual for most small businesses to file bankruptcy. In most cases, the business’s debts far outweigh the business’s assets. If creditors were to try to collect the debt from the business, they wouldn’t get anything from the business. There just isn’t any practical reason for the business to file bankruptcy. The one reason a business might want to file bankruptcy is if it has a great deal of inventory or property that it needs to get rid of to satisfy its creditors. Some business owners will file bankruptcy in that case to let the bankruptcy trustee deal with the distribution of these things.

Just because there might not be a reason for the business to file bankruptcy, that doesn’t mean that the business owner doesn’t need to file bankruptcy.

Most lenders or landlords for small businesses will only extend credit or enter into contracts for a small business if the owner signs a personal guarantee for the business. What that means is that even if the business shuts down, the lender or landlord can still pursue the owner to collect the debt. If that’s the case, then the owner may need to consider Chapter 7 or Chapter 13 bankruptcy. The good news is that most business related debts, even loans from the Small Business Administration, can be eliminated in bankruptcy. Keep in mind that SBA loans are sometimes secured by the business owner’s residence.

Of course, if the owner has to file bankruptcy that creates other questions related to their non-business debt, assets, and how bankruptcy might affect their spouse.

We can answer all of your questions during an initial consultation. Our job is to get you through the bankruptcy process as quickly and safely as possible.

I often get asked when I meet with someone who is thinking about filing bankruptcy, whether or not there is any chance that their bankruptcy would be denied. They are unfamiliar with the bankruptcy process and worried that something might interfere with their ability to get the fresh financial start that they desperately need.

Before you get too concerned, you should know that it is extremely rare for the bankruptcy court to deny someone’s discharge in chapter 7.

There are five primary reasons why you might not get a discharge of your debts if you file chapter 7 bankruptcy.

You received a discharge in a previous chapter 7 bankruptcy that was filed within eight years of filing your current chapter 7 bankruptcy; or you received a discharge in a previous chapter 13 that was filed within six years or your current chapter 7 bankruptcy.

If you conceal any information about your income, assets, debts, and expenses; or engage in any fraud during the bankruptcy process.

The court could deny you the discharge of a specific debt, as opposed to all of your debts, if you used a line of credit excessively within the three months before you filed your case.

Most people will go through the chapter 7 process without any bumps in the road, and will receive a discharge of their dischargeable debts approximately four months after they file their case. An experienced Denver bankruptcy attorney can guide you safely through the process and answer all of your questions.

At least a few times a month, I’ll get calls from people that go something like this: They filed bankruptcy several years ago. They’re now trying to sell or refinance their home. The title company has discovered a judgment lien that has to be eliminated before the refinancing or sale. Once the homeowner discovers the lien and realizes that it was placed on their home prior to their bankruptcy, they’ll call the creditor and ask them to remove the lien.

Unfortunately, the only thing that bankruptcy will automatically eliminate is the underlying debt to the creditor, meaning just the money that is owed. If a creditor has filed a lawsuit and gotten judgment, the creditor can record that judgment and place a lien against any real estate. The creditor will remove the lien, but will want to be paid the amount of the judgment or some settled amount.

It’s possible to remove judgment liens in bankruptcy, but it requires filing a motion to “avoid” the lien. If you didn’t disclose the lien to your bankruptcy attorney, or the attorney didn’t run a title report to discover such liens, then no motion will be filed. Most attorneys will charge above their usual flat fee to prepare a motion to avoid.

In order to get rid of a judgment lien, at the time your bankruptcy case was filed there must have been less equity in the home than is protected by the homestead exemption. The current homestead exemption is $75,000 (the previous amount was $60,000). If your home is worth $75,000 (or more) than what you owe, it’s likely that the judgment creditor will fight your motion and ask the court to leave the judgment lien in place.

So, what happens if you discover the lien after your bankruptcy has been filed? The good news is that it’s not too late. First, your attorney will need to file a motion to reopen the case. The court charges a fee to reopen the case (currently $240.00). Once the court reopens the case, your attorney will have to file the motion to avoid the lien. The judgment creditor has 28 days to respond to the motion. If it doesn’t file a response, the court will issue an order avoiding the lien, which you can record with the county recorder’s office. This order will effectively nullify the judgment lien and clear the way for you to sell or refinance your home.

If you need help removing a judgment lien after your bankruptcy case has been filed, give us a call.

One of the greatest concerns that my clients have about the bankruptcy process is whether or not they’ll be able to keep their car. For most people, the answer is yes. In fact, in the hundreds of cases that I have handled, I have yet to have a client who had to involuntarily surrender their vehicle. When they have done so, it was voluntarily. The typical reason is that they can not afford their car payment. When you surrender you car after bankruptcy, you don’t have to worry about being liable for any money afterwards. Bankruptcy prevents the lender from coming after you.

Car loans are secured debts, which are handled somewhat differently than other debts in bankruptcy. A secured debt means there is collateral (in this case, the car) attached to the promissory note (contract to repay money). The lender holds the title to the car until the promissory note is paid off. The title allows them to repossess the car if you default on the loan. If you don’t file bankruptcy and stop making payments, the lender will sell the car and come after you for any money still owed on the loan.

If you file bankruptcy, the promissory note will be discharged (eliminated) just like any of your other dischargeable loans. You’ll be able to keep your car as long as you keep making payments, but if you stop making payments after bankruptcy, the lender can’t pursue you for any money.

A couple of things will happen after you file bankruptcy on a secured debt (mortgages are other common secured debts). First, the lender will stop automatically pulling payments out of your bank account, so you’ll have to “push” those payments to them. Second, because the promissory note, or loan, has been discharged, they will stop reporting payments to the credit bureaus.

Clients will often ask if they should reaffirm a car loan. Reaffirmation means signing a contract that “revives” the promissory loan. If you sign a reaffirmation agreement and stop paying on the loan, the lender can repossess your car and sue you to collect any money that is owed on the car loan, even after bankruptcy.

Clients will ask about reaffirmation agreements for two reasons. First, the lender tells them that if they don’t sign a reaffirmation agreement, they will repossess their car after the court issues their discharge order. Second, the clients believe that reaffirmation is a good way to rebuild their credit.

I generally advise against reaffirming a car loan, for a few reasons. As a bankruptcy attorney, my job is to help people get relief from their debts; reaffirming involves taking on debt. There are other ways to rebuild credit that involve less risk. The most common way is to apply for a secured credit card. Finally, I am aware of only one lender in Colorado that will follow through with their threat to repossess a car if the buyer doesn’t sign a reaffirmation agreement, and I will advise those clients of that.

Reaffirmation is a bad idea if: your monthly car payment is more than you can afford or your car is older and will likely need major repairs in the near future. If you sign a reaffirmation agreement, and you can’t afford the monthly payments, you will still be responsible for the loan. If your car breaks down, and you can’t afford an expensive repair, you will be stuck with a loan for a car that you can’t drive.

Before you sign a reaffirmation agreement for a car loan, you should talk with an experienced bankruptcy attorney.

When potential clients come into my office for a free consultation, they are usually concerned about two things: whether bankruptcy will get rid of their debts and how long will it take to re-establish their credit.

Bankruptcy will get rid of most debts, except: child support and alimony obligations, certain back taxes, student loans, loans obtained by fraud, and court or government imposed fines. Otherwise, bankruptcy will eliminate overwhelming medical bills, credit card debt, repossessed car loans, apartment evictions, payday loans, and other common consumer debt.

A Chapter 7 bankruptcy will remain on your credit report for 10 years, but that doesn’t mean it will be 10 years before you’ll get credit. Shortly after we file your bankruptcy case, you’ll get invitations from car dealerships to visit them to buy a car.

Before you jump into a car loan after you file bankruptcy, there are a few things you should know. First, some lenders will give you a loan the day after you file bankruptcy. Others will want you to wait until you get your discharge order, which the court will issue about four months after your case was filed.

Second, you will be legally liable for any new debt you take on after you file bankruptcy. You should consider whether you can afford to take on new debt, especially after you have just taken steps to eliminate it through bankruptcy.

Finally, you should keep in mind that any car loan you get right after you file bankruptcy will likely come with a very high interest rate. You’ll have to decide whether the added expense of the higher interest rate is worth buying another car. The good news is, the further you get from your bankruptcy filing date, the more your interest rates will improve on new loans.

In some cases there are benefits to buying a car after you filing bankruptcy. One, of course, is that it can help re-establish a positive credit score. The other benefit, if you already have a car loan and the car is worth less than what you owe, is that you can get rid of the existing car loan in your bankruptcy.

What that means is that you will be able to buy a new car that is worth the value of the loan and you don’t have to roll the loan on your other car into the new loan. You can surrender the car you had when you filed bankruptcy anytime without worrying about the lender coming after you for any money as long as you have not signed a reaffirmation agreement.

Not everyone who comes to me for help wants to file bankruptcy. Their problem isn’t that they’re dealing with overwhelming debt, but they are having trouble buying a car or a home because of errors on their credit report. Oftentimes, there are still debts showing as owing even after they have filed bankruptcy, or someone has stolen their identity to get credit.

While I specialize in bankruptcy, the following are some tips in how to take care of errors on your credit report:

Request an investigation in writing. The first step in disputing a credit report error is to put it in writing and mail it to the credit reporting agency. You might consider mailing it return receipt requested so that you have a record of their receiving your dispute. Follow up by phone a week or so after you mail it or get the return receipt.

Order a new report and review it for errors. New information is added to your credit report each month, so you can see if errors have been corrected. Take note of misspelled names or incorrect addresses, which be a sign of more than one individual being listed on a single credit report.

Don’t limit yourself to the credit reporting agency’s forms. When you receive your credit report, you’ll also get a form that allows you to file a dispute. Don’t feel like you need to use this form if it doesn’t adequately describe the error. At minimum, supplement it with additional details and documents. Avoid submitting your dispute online where you might not be able to keep a record of your correspondence.

Keep all of your communication. Make sure that you also keep notes of phone conversations. Include dates.

Notify the creditor of the dispute. Besides sending a copy of your dispute to the credit reporting agency, you should also send a copy directly to the creditor who is furnishing the false information. Doing so will keep the creditor from arguing that it didn’t receive notice from the credit reporting agency, so it couldn’t investigate your dispute.

Send your dispute to all three major credit reporting agencies. Since an error on one credit reporting agency’s report will probably show up on another agency’s report, make sure you file a dispute with the three major agencies: TranUnion, Experian, and Equifax.

Be specific. When you prepare your dispute, make sure you clearly identify who you are, your address (and residential history for the last few years), which account is being disputed, and why you are disputing it. Make sure your description of the account is clear enough that even if the account is sold to a third party collector, the credit reporting agency will still be able to identify it.

Support your dispute. Include any documentation you have to support your argument that the debt is showing up as an error. If the creditor has sent you a letter acknowledging the information they provided the agency was an error, send it to the agency.

Show that the creditor has provided inaccurate information about others. You should investigate whether or not the creditor has a reputation for providing inaccurate information and bring it to the agency’s attention if it does.

If you agree to pay a debt, ask the creditor to remove negative information. If you decide to pay a debt that you dispute you owe, ask the creditor to remove any negative information they have reported. They might refuse, but it doesn’t hurt to ask.

Of course, if you have several accounts that are being negatively reported to the credit reporting agencies because of late payments or failure to pay, bankruptcy might be a good option if you are unable to pay those debts. Bankruptcy will basically nullify those negative marks and “reset” your credit report so that you can rebuild your credit score. Most of my clients will see their credit score improve an average of 100 points within a year of filing.

Although there are strict rules when it comes to collecting a debt, you can’t always rely on debt collectors to follow them. Unfortunately, there are debt collectors out there who will take advantage of your confusion and anxiety about dealing with them and are more than happy to accept your payment for a debt that doesn’t belong to you.

If you get a call or a letter in the mail about a debt you don’t recognize, here are some things you can do to verify whether or not the debt is yours:

Find out who you’re dealing with. Ask for the caller’s name and the company he works for. Get their address and phone number. A legitimate debt collector won’t have a problem giving you this information.

Don’t give them any personal information. Don’t confirm whether or not the collector has your correct information, and don’t correct them if they have wrong information. If the debt is not yours, giving them correct information could make it harder to dispute the debt later. Don’t give them any information about your employment either.

Ask for a debt validation notice. Collectors are required to provide, in writing, information about how much money you owe, who the original debt was with, and what to do if you dispute the debt. This information may help you in finding out if the debt is yours or not.

Be your own detective. If you find out who the original creditor is, call them directly to find out more about the debt. You should also check your credit report to see if the debt appears on it.

Dispute the debt in writing. Be as specific as possible as to why you don’t owe the debt, but remember not to give any current information about where you live or work or even your birth date or social security number. If you want them to stop contacting you, you must ask them to stop in writing. Keep in mind, however, that asking them not to contact you won’t keep them from filing a lawsuit if they believe you owe the debt.

The Supreme Court recently held that a debtor in a Chapter 7 bankruptcy proceeding may not void a junior mortgage lien under §506(d) when the debt owed on a senior mortgage lien exceeds the current value of the collateral if the creditor’s claim is both secured by a lien and allowed under §502 of the Bankruptcy Code.

In Bank of America, N.A. v. Caulkett, 135 S.Ct. 1995 (2015), the debtors each owned homes that were encumbered with both senior and junior mortgage liens. The values of the home were below the amount owed on the senior liens, leaving the junior mortgage liens entirely underwater. When the debtors filed their Chapter 7 bankruptcies, they moved to “strip off”, or void, the junior mortgage liens under §506 of the Bankruptcy Code.

Section 506(d) provides, “To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void.” The dispute between the debtors and the lender rested on their interpretations of whether the junior mortgages were “secured” within the meaning of §506(d).

Despite the debtors’ urging, the Court refused to distinguish its holding Dewsnup v. Timm (502 U.S. 410, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992)), and relies on Dewsnup to construe the meaning “secured” within the context of §506(d). In Dewsnup, the Court held that if a claim “has been ‘allowed’ pursuant to §502 of the Code and is secured by a lien with recourse to the underlying collateral, it does not come within the scope of §506(d).” Since the debtors did not dispute that the claims were allowed under §502, the Court held that the junior mortgages could not be stripped.

Debtors who want to strip their second (or any other junior) mortgages will have to file a Chapter 13 bankruptcy.

Stripping a junior mortgage becomes less viable as property values increase. If you are interested in stripping a junior mortgage, you should obtain the most thorough valuation possible, at least a comparative market analysis, if not a complete appraisal.

Finally, debtors can still strip judgment liens in a Chapter 7 bankruptcy.